Big Money Managers Struggle

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The New York Sun

Against a backdrop of smaller bond returns, hedge funds sponsored by large total-return investment managers have found this year tough sledding, so much so that one manager, Pasadena, Calif.-based Western Asset Management Company, is closing its venture, the San Gabriel fund.


Moreover, a hedge fund run by WAMCO’s primary rival, Newport Beach, Calif.-based Pacific Investment Management Company, was down 2% at the end of July. PIMCO manages approximately $390 billion in fixed income spread across both mutual and total rate-of-return funds. The $425 million Global Relative Value fund has inconsistently performed since its launch in 2002, and was down nearly 7% three months after launching.


For comparison, the Hedgefund.net fixed-income arbitrage index of 119 funds is up 4.60% this year versus last year’s 8.99% return.


Hedge fund portfolio managers can sell-short securities for protection against a decline in price for the securities they own; total-rate of return managers are “long-only” managers, who do not sell-short securities, and who make money by a combination of price appreciation and bond-interest or dividend payments.


The San Gabriel Fund had almost $600 million under management when the decision to close it was made early last month, according to a person familiar with the situation. The fund was up approximately 4% when it was closed.


It was shut down because managers “weren’t going to focus on this [fund] as much as other portfolios,” said this individual. WAMCO manages approximately $200 billion in various bond portfolios.


The decision to shut the San Gabriel Fund was hastened by the departure of its chief portfolio manager, Al Mc-Clymonds, who resigned early last month to move back to the East Coast. Mr. McClymonds acknowledged leaving the firm and the fund’s closing, and said both were done on good terms.


“Al did a good job trading Treasuries and agencies and [his WAMCO colleague] Jae Choi did well trading swaps and mortgage-backed securities, but that was it in terms of commitment to the fund from WAMCO’s traders,” said an investor, who had several million dollars invested with the San Gabriel Fund.


“There’s a heck of a world-view difference between managing a hedge fund and managing a ‘long-only’ fund. Guys like Jae and Al, who came from dealers, are used to capturing small spreads and spotting temporary price inefficiencies,” the investor said.


“WAMCO kept us in the loop, shot straight with us, and gave us plenty of time to make arrangement for returning our capital,” said the former San Gabriel investor.


The New York Sun

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